Poundland, the UK discount retail chain, is under scrutiny as its owner, Poland-based Pepco Group, explores the potential sale of the brand amidst challenging trading conditions and upcoming fiscal changes that threaten to increase operating costs. The decision comes as the company aims to pivot its focus back towards the more profitable Pepco brand, which is identified as the primary revenue contributor within the group.

The move comes on the heels of a severe downturn in sales performance for Poundland, with Pepco reporting a decline in underlying earnings anticipated to range from €50 million (£41.9 million) to €70 million (£58.6 million) due to negative sales trends observed in January and February. Pepco stated that while Poundland boasts a significant presence, serving millions of customers weekly and generating an annual turnover close to €2 billion (£1.67 billion) in the 2024 financial year, it is facing increasing challenges within the UK retail environment.

From April 2025, new tax measures implemented by the UK Government will contribute further to Poundland’s cost strains. According to Pepco, the board is “actively evaluating all strategic options to separate Poundland from the group during financial year 2025, including a potential sale.” The parent company has acknowledged that the retail sector has been particularly hard hit following the tax changes announced in the previous October’s Budget, which also included increased national insurance contributions and minimum wage hikes.

In an effort to address the sales downturn, Pepco plans to revert to its core strengths by increasing the availability of items priced at £1 or lower, a strategy that had seen a decline in recent years with a push towards higher-priced products. The chain’s revenue saw a significant drop of 9.3% for the three months concluding on December 31, with like-for-like sales decreasing by 7.3%, largely influenced by lower clothing sales and general merchandise following the transition to Pepco-sourced products. In light of these difficulties, Poundland has also confirmed the closure of 13 stores with only two new openings, indicating a withdrawal from expanding its physical retail presence in the near term.

Stephan Borchert, the Chief Executive Officer of Pepco Group, remarked on the mixed performance of the group, pointing to strong results from the Pepco and Dealz brands contrasted by the ongoing challenges faced by Poundland. He stated, “Getting Poundland back on track is a key priority – we are undertaking a comprehensive assessment of the business and taking immediate measures on improving cash performance and strengthening the customer proposition.” Furthermore, former Poundland managing director Barry Williams, who took on the role of managing director at Pepco in September 2023, will be reinstated at Poundland as part of the strategy to rectify its trajectory ahead of any potential sale.

As various retailers brace for the impact of the forthcoming budget changes, the future of Poundland remains uncertain as Pepco Group evaluates its next steps in what it describes as an “increasingly challenging UK retail landscape.”

Source: Noah Wire Services